Man that's a little too risky for me

Do you ever find yourself in a situation where there's a decision to be made but you are reluctant to go ahead because you're scared of the unknown risks associated with the outcome.


Before you say, "man, that's too risky for me," try a little project management trick to aid in the decision-making process in a logic manner.  


This is what I generally do in these situations where I am scare to make a decision.


1. Identify the risks. I find it easier to do this if I visually map out  a SWOT analysis of the situation. A SWOT grid will look something like this:

                 Strengths                                         Weaknesses

                 Opportunities                                    Threats


Write a list under each of the above-noted headings. This will help you analyze the strengths of making the decision, compared to weaknesses, compared to opportunties, and finally, compared to threats  -- or in other words "the risks".


You'll see, if you do the above, you will naturally expose any "risks" assoicated with a decision's outcome. 


2. These exposed risks are then assigned an impact value. Run through your "Threat" column of risks to determine how severe the respective identified risk might be should it actually materialize.


This is what is generally referred to as assigning an impact to the risk.


This basically implies that as you are enumerating through these risks, assign values to them.


What do these values mean you say?


Well, think of the identified risk's impact in terms of a scale. For example, if a risk in your threat column will have an impact that is trivial, assign it a value of 1; if the impact is minor, assign it a value of 2; if it is moderate, assign a value of 3; if the impact is major, assign it a value of 4; and finally if the impact is extreme, assign it a value of 5?


You can more concretely think of these values in terms of a financial loss if the risk were to happen. So a value of 5 for example would have more financial impact than a 3. Thus, the greater the impact value, the more money you could lose as a result of that risk occuring.


3. Assign a probability to the occurance of the risk. Is something less, or more likely to occur? We live in a world of probabilities. Just because you identified a risk, doesn't mean that it will occur; instead, there is a certain probability that it will occur.


So, we need to determine the "probability" that each of the afore-mentioned risks will take place.


To keep your analysis simple, use a simliar strategy as employed in the risk impact assessment above. For example, run through the risks again, and assign values to them in terms of the "probability" that this risk will happen.  Again use a scale of 1-5 levels of probability, similar to: rare, which I assign a 1; unlikely, a 2; moderate, a 3; likely, a 4; and very likely, a 5.


4. Draw out a impact probability chart.  This is a classic XY graph with the "X" axis representing impact values that you determined from 1 to 5, above, and the "Y" axis representing the probability values from 1 to 5 that you also determined above.


Plot your risks on the graph (you can think of them as points really).


And "voila," now you have a visual representation of the risks involved with making the decision using these 4 simple steps:

  1. Identify the risks
  2. Give each an impact value
  3. Give each a probability value
  4. Plot each risk in an XY graph, where the "X" axis is the impact, and the "Y" axis is the probability.


Hope this tool helps you clarify and quantify your decision making process.

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